Medicare cuts give health providers jitters

Nursing homes are worried about future cuts as well. The ACA will cut an estimated $15 billion from their payments over 10 years, and that’s in addition to cuts the sector sustained both before and after the health care law — which combined are even larger, said Alan Rosenbloom, president of The Alliance for Quality Nursing Home Care.

Nursing homes — and the hospitals, too — could suffer from proposals to cut so-called Medicaid provider taxes, which provide a substantial share of nursing home funding.

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To avoid direct cuts, some providers are coming up with alternative savings of their own that they argue would save the government money while providing the stability to deliver more efficient and better quality care.

The American Health Care Association, the largest trade group representing nursing homes, put forward a proposal with Rosenbloom’s group that would require nursing homes to achieve $2 billion in savings over 10 years from reduced hospital readmissions. If the sector did not, “high-offending” nursing homes would be penalized, said AHCA president and CEO Mark Parkinson, the former governor of Kansas.

Parkinson and Rosenbloom said they are working on proposals to put larger sums on the table as part of any long-term “grand bargain” that might be struck.

Nursing homes want to be a part of the solution, Parkinson said. “On the other hand, if we’re not involved, if we are neglected, enormous additional cuts that aren’t extremely well thought out threaten access to millions of Americans because a lot of nursing homes are on the brink,” Parkinson said.

Home health agencies are another troubled sector, facing almost $40 billion in ACA cuts over 10 years. Advocates say those cuts alone, the bulk of which kick in in 2014 and beyond, are enough to jeopardize access in many parts of the country.

“Home health agencies have employed every efficiency available to address rate cuts to date,” said William Dombi, vice president for law at the National Association for Home Care and Hospice. “As such, there are few if any options to cope with the greater cuts that are scheduled to start in 2014.”

But it’s not just the providers who are protesting in advance — insurers are, too. The health care law takes a large chunk of funding from the popular, private Medicare Advantage plans — plans that were introduced with the promise of saving money through market competition but cost the government, on average, 117 percent as much for each enrollee as the traditional program.

The ACA would trim an estimated $155 billion from payments to those plans to bring them more in line with regular Medicare.

The majority of those cuts come later this decade, however, and so far, an $8.3 billion demonstration program by HHS to reward high-performing plans has largely offset the cuts — about 70 percent of them in 2012, according to theGovernment Accountability Office. And so far, access to Medicare Advantage has not been significantly impacted.

Some Republicans claim the pilot, which the GAO recommended be shut down, was put in place to defer serious damage to the popular program before the election. But those extra bonus payments drop off quickly — offsetting just 32 percent of the cuts in 2013 and 16 percent in 2014 before disappearing.

Karen Ignagni, president and CEO of America’s Health Insurance Plans, notes that that’s the same year that the health care law’s premium tax kicks in — which she says will add $25 per month to the average Medicare Advantage plan.

“It’s a double whammy,” she said. The combined costs “could mean a significant reduction in benefits for seniors.”

AHIP plans to make sure Congress members understand the impact of the effects. “What that means by a district-by-district basis — we’re going to make sure that members of Congress know,” she said.

Readers' Comments (10)

I hope to see specialist clinics that look like clinics and not high-end hotels. Whenever I go into one of these palatial specialist clinics I am stunned by the waste that is paid for by patients and their insurance companies.

It's a sad country, where the poiticians force workers to pay into programs, (S.S. & Medicare), and they steal $2.6 Trilliion from S.S. and never pay it back, and now steal from Medicare for Obamacare, plus cut services.

All while illegal aliens are not required to purchase health insurance, and O has increased foreign aid by80%.

Over $300 Billion is spent each year, on illegal aliens.....and the elites in D.C. take from Medicare and S.S., while they pander to foreigners!

Concerns? Doubts? As sure as God made little green apples Medicare, under Obama will not serve the elderly. Doctors will flee in droves. Serves those who voted for "O" right. Obama just can't understand that to stay in business to serve people one must make a profit. You "O" voters will get what you deserve............and soon.

Single payer, medicare for all and screw the private providers and the for profit insurers they rode in on! Oh, and maybe it's time to start looking at a tax system based on the Pigou theory to trim a bit of inequalty out of this decaying society! FREE BRADLEY MANNING!!!!!!!!

No worries providers especially those who helped push the disaster through you can relax barry's got you all covered - covered that is for a good royal screwing. To think people believed barry was taking care of them and Governor Romney was going to cut and take away well you are just about to learn the truth and it gets better in 2013 and even better in 2014!!! Good luck!

This claim, that the Affordable Care Act, would take money away from Medicare and damage the program and its recipients, was a prominent part of the GOP/Romney disinformation campaign. It simply is a vast distortion. See as follows:

Republicans claim the president’s $716 billion “cuts” to Medicare hurt the program’s finances. But the opposite is true. These cuts in the future growth of spending prolong the life of the Medicare trust fund, stretching the program’s finances out longer than they would last otherwise.

Mitt Romney has claimed that President Barack Obama has “robbed” Medicare. Rep. Paul Ryan, Romney’s running mate, said Obama “turned Medicare into a piggy bank to fund Obamacare,” promising to “stop the raid on Medicare.” And the Republican National Committee is promoting on its website a feature it calls “Obama’s Countdown to Medicare’s Bankruptcy,” which lists the days, hours, minutes and seconds left until the Medicare Part A trust fund is exhausted. But there would be even fewer days until the fund’s exhaustion if Obama’s health care law hadn’t included those $700 billion in spending reductions.

It’s true that experts, including Medicare’s chief actuary, doubt that some of those spending cuts will actually be implemented. But if they are, Medicare would spend less each year than it had been expected to otherwise, allowing Medicare to stretch further the income it receives from payroll taxes and premiums.

How a Cut Helps the Medicare Budget

To some voters, it may sound counter-intuitive at first to think that cutting money from Medicare would improve, not weaken, its finances. But, again, this is a reduction in the future growth of Medicare spending over 10 years. And spending less is a good thing for Medicare’s finances — as it is for most people’s.

For instance, let’s say someone has a dedicated coffee budget but decides to drop a daily latte habit and instead buy regular coffee. That person’s coffee budget took a big cut in spending, enabling the budget to last longer. Instead of one month of lattes, this java fan can have two months of coffee.

The biggest savings from the Affordable Care Act come from reductions in the future growth of payments to hospitals — about $415 billion over 10 years. That’s Medicare Part A. Income for Part A comes mainly from payroll taxes. If Medicare doesn’t need to spend that income immediately, it’s credited to Part A’s trust fund, and Medicare gets a Treasury bond that it can cash in later. Anytime Medicare needs to cash in that bond, Treasury must pay it. Even if Treasury spent the original money on something else, it must pay the bond.

So, campaign claims that imply that Obama has taken money out of Medicare, and Medicare won’t ever get it back, are simply not true.

At an Aug. 21 campaign stop in West Chester, Pa., Ryan said Obama and the Democrats “turned Medicare into a piggy bank to fund Obamacare. They took $716 billion from Medicare to pay for their Obamacare program.” On the other hand, he added, Republicans are “being candid with our current seniors” and “saying stop the raid on Medicare.”

Unfortunately for Medicare there isn’t $700 billion in any kind of “piggy bank” to “raid.” The trust fund doesn’t have anywhere near that much money — the Part A trust fund only contained $244.2 billion at the end of 2011. And the president can’t actually take money out of the trust fund. Medicare holds those Treasury bonds, and, as we said, it can cash them in anytime it needs the money.

The problem for Medicare is that the trust fund isn’t going up — it’s declining year after year. Some voters may get the mistaken impression that money they paid in to Medicare will pay their benefits once they retire. But as a practical matter the program functions as a pay-as-you-go system. And current income isn’t enough to pay all current benefits.

Without the spending cuts in the Affordable Care Act, the Part A trust fund was expected to be exhausted in 2016. With the ACA cuts, that date was pushed back to 2024.

That makes the RNC’s bankruptcy clock a bit curious. If the federal health care law hadn’t included those cuts to spending, there would be even less time left on that countdown.

Bankruptcy Blunders

That doesn’t mean that Medicare will be “bankrupt” — either in 2016 or 2024 — as both campaigns are fond of saying. Obama’s deputy campaign manager, Stephanie Cutter, and Romney supporter and former Pennsylvania Sen. Rick Santorum offered these competing claims on CNN’s “State of the Union“:

Cutter: The last point on this, if they put that money — put that savings back into the system, it means that Medicare will go bankrupt in just four years. So if Mitt Romney and Paul Ryan get elected to the White House, Medicare will be bankrupt by the end of their first term, that is what that means.

Santorum: And I just listened to the Obama spokesperson before this, I mean my head was spinning. To suggest that adding $700 billion back to the Medicare program is going to cause its financial collapse, that — you can only make that statement if you have been in Washington way too long.

Santorum is off base, as we’ve explained. If $700 billion isn’t cut from the growth of future Medicare spending, Medicare will spend money out of that trust fund more quickly, leading to its exhaustion at a much sooner date. But Cutter goes too far in saying that the program would be “bankrupt.”

Part A could still spend what it takes in from payroll taxes, though it would not be enough to cover all benefits. The Medicare trustees say that the tax “would cover only 87 percent of estimated expenditures in 2024 and 67 percent in 2050.” And that’s only Part A. Physician and drug costs, which are covered by Parts B and D, are covered by general revenues and premiums paid by seniors. Treasury must pay whatever is necessary to meet the costs for Parts B and D each year. (For more on Medicare’s finances, see our Aug. 22 article, “A Campaign Full of Mediscare.”)

Also, the trustees have been warning about the exhaustion of the Part A trust fund since 1970, but Congress has never allowed the fund to be depleted. Congress has always taken some action, often raising payroll taxes to extend the life of the fund.

Double-Counting

The Romney campaign’s real complaint is that the Affordable Care Act counts those Medicare savings as money that can cover other aspects of the law. But the money can’t pay for two things at once.

When we asked the campaign how it could argue that Obama’s spending reductions didn’t extend the life of the trust fund, a spokesman replied that it didn’t extend the fund “unless the administration is ready to admit their law blows a huge hole in our deficit.”

The fact remains that Obama can’t take away the Medicare trust fund bonds. But both the nonpartisan Congressional Budget Office and Richard Foster, Medicare’s chief actuary, have said that the law can’t extend the life of the trust funds and pay for other measures at the same time. Foster said in 2011 testimony: “In practice, the improved HI [hospital insurance] financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.”

What happens in government accounting is that after Treasury issues a bond that it will have to pay later, it can spend the money it received on other things. And it often does, whether that’s coverage expansion, as called for in the health care law, or any number of things. The Romney spokesman said it was “a shell game.”

But that doesn’t mean that the Medicare trust fund will be slashed or its “piggy bank” “robbed” or “raided,” or any other claim we’d put firmly in the category of “senior scare.”

As we’ve said before, both the Romney and the Obama campaign propose cutting the growth in Medicare spending over the long run, and both would have to find ways to reduce spending or increase revenues to extend the trust fund in the near future. Obama has done so mainly by reducing the growth in payments to hospitals, but the Medicare trustees have said that many experts believe the “price constraints would become unworkable and that Congress would likely override them.” The Romney campaign says its health care proposals — which include limiting medical malpractice damages, promoting “alternatives to ‘fee for service’ ” and allowing the sale of insurance policies across state lines — would lower health care costs in the country in general, so Medicare costs would come down, too. That also remains to be seen.

The Obama administration is under the illusion that the life of the Medicare trust fund can be extended while simultaneously using Medicare money to pay for the ACA. The law changes Medicare payment formulas across the board. Moreover, the ACA will increase Medicare taxes, increasing the Medicare payroll tax to 3.8 percent on high-income earners.

I've noticed that seeing as the insurance companies profits are capped to 15% my copays have shot up. Having a incurable disease and needing a MRI every year my cost has gone from $30 copay to $150 this last Year and now $175 for the coming year. Must have my math wrong because lets say they pay $100 they would get $15 profit, but if they paid $1000 they would get $150. So it seems to me that the more they pay the bigger the profit. Someone please tell me how I'm figuring this wrong

I've noticed that seeing as the insurance companies profits are capped to 15% my copays have shot up. Having a incurable disease and needing a MRI every year my cost has gone from $30 copay to $150 this last Year and now $175 for the coming year. Must have my math wrong because lets say they pay $100 they would get $15 profit, but if they paid $1000 they would get $150. So it seems to me that the more they pay the bigger the profit. Someone please tell me how I'm figuring this wrong